The factors you have to consider before choosing your forex brokers

The factors you have to consider before choosing your forex brokers

It is important to be aware that there are many essential concepts to understand before going live. Any move to trade foreign exchange without grasping the essential concepts is definitely very risky.Therefore, in this article we shall examine some key features which usually the best forex brokers have.The purpose here is to give you knowledge so that you can make your own list of forex brokers and choose the one which you think is best.

In making your list you will have to carefully examine some factors which are forex margin,forex leverage,ecn forex and the forex spread. For example you will have to look at the forex margin and leverage which forex brokers allow. Lets say that you want the margin-based leverage to be around 50:1 so that you can reasonably multiply your trading capital while not taking too much risks.On 18th October 2010 the new rule of the CFTC has become effective. This means that forex brokers will now offer a maximum leverage of 50:1 for major currency pairs.

This rule has been previously subject to much debate and many forex reviews sites still recommend not to open a forex trading account with a US regulated broker.Whether they are right or wrong is for you to judge.If you heed to their recommendation you will want to look for forex brokers operating in other jurisdictions such as the United Kingdom.In addition you have to consider if there are enough regulations to protect your funds against fraud and bankruptcy of forex brokers.

After this you should investigate the business model of the brokers. Don't worry this is not as difficult as it appears. You just have to find out if the forex broker is a market maker or ecn.A broker who operates a dealing desk is potentially dangerous because it can manipulate the movements in currency prices. This is why the best choice is ecn forex.But ecn brokers can at times be costly if they charge a commission on each trade.Will you then prefer to open a trading account with a broker who has a dealing desk?

The forex spread is the next factor to consider in building your list. Typically one will want to trade with a broker who has very low spreads.Generally brokers who operate ecn provide the lowest spread because they can reach a larger pool of liquidity.In addition you will have to make some further research to find if the spread is fixed or variable. During the release of economic news such as ECB interest rate decision brokers who offer variable spreads tend to have larger spreads . You should also look at slippage which occurs when your order is filled at a different price than what you are expecting. How much slippage can be expected in normal and fast moving markets?

The above discussion points to the esential factors you need to carefully examine when selecting forex brokers.Some further questions that you could ask are: Are the trading platforms offered user friendly? Can i trade a large variety of currencies? Do they provide micro or demo accounts which i can use to hone my trading skills?This last question is particularly important because we always strongly recommend new traders to practice on a demo account.They can then open a micro account before moving on to a mini or standard account.

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